Comprehensive Credit Reporting: how does this affect you?1:22

One of the changes the new financial year will bring is the introduction of Comprehensive Credit Reporting (CCR). What is it and why could it mean more money in your pocket?

June 29th 2018

9 months ago

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Aussies who enlist the services of ‘debt solution’ companies can be left much worse off, consumer law experts warn.Source:News Limited

You’ve probably seen the advertisements for services that promise to help get you out of crippling debt and bring an end to the nightmare of frightening calls and bankruptcy threats.

The reality is that almost anyone can start one of these debt management firms, with little-to-no financial services experience and no regulatory oversight.

And in many cases, they leave already vulnerable people in much more debt and staring down the barrel of insolvency.

Consumer Action Law Centre boss Gerard Brody said these so-called debt vultures make grand promises that they can’t possibly meet.

“The promise of fixing your debt worries and getting you back on track just doesn’t live up to reality in our experience,” Mr Brody said.

“The fact is they can charge hidden and high fees, they can mislead about what it is they can do, and leave people in further debt.”

Debt vultures are preying on broke Australians and leaving many in much worse financial situations.Source:Supplied

That was the experience for Erica, who approached a debt assistance service a few years ago on the advice of a worried friend. The now 29-year-old had just fled an abusive relationship and was struggling to keep on top of her finances.

“I had to stop because work because I needed surgery and so I approached this debt management service for advice,” Erica told news.com.au.

“I was going off having surgery, I was a casual worker, I couldn’t guarantee I would get hours at my work after I had surgery … but they estimated what they thought I might earn when I was (recovered), what hours I might get a month.”

They also coerced Erica into absorbing her ex-partner’s debt and financial commitments, as well as joint bills. It didn’t feel right but the consultant insisted everything would be fine.

“I told them from the start … I tried to tell them that I was unsure … they insisted it was fine. At the end, when I couldn’t pay, they suggested that maybe I should go bankrupt.”

Australia has some of the highest household debt levels in the world. Source: finder.com.auSource:Supplied

Erica is now expecting her first child in May and finds herself “stuck in limbo” and choking on $60,000 of consolidated debt — most of which isn’t hers.

“These people said they would help me but they’ve made things so much worse than they were,” she said.

Mr Brody said Australia was lagging behind the rest of the world when it comes to the regulation of debt management services — something that’s of huge concern when you consider the nation has some of the highest levels of household debt in the world.

“Anyone can set up one of these debt businesses — whether it be a debt negotiator, a debt broker or a credit repair agency — without many, or any, regulatory requirements at all,” he said.

“It’s not regulated at all. It’s the key thing we’re asking for — a regulatory framework for debt management in Australia. There simply isn’t one.

“The corporate regulator ASIC has really limited oversight and can’t do a lot. That needs to be fixed as well.”

A dodgy debt management service can leave Australians in even more financial strife with long-term implications. Picture: AAPSource:AAP

Operators are known to wrap up people’s debt, even if they suspect they can’t meet the repayments, and load in account management fees and high ongoing charges, he said.

“It might mean there are extra costs or they could lead you down the insolvency track. Some of these operators end up making referrals to debt agreement administrators for a form of insolvency under bankruptcy legislation,” Mr Brody said.

“That can have implications for a very, very long time.”The Consumer Action Law Centre has also come across instances where Australians experiencing mortgage stress — repayments requiring more than 30 per cent of a household’s income — are taken advantage of.

“We’ve seen those people convinced by debt vultures to allow them to strip equity from the property or place caveats over it. But really, in exchange, they don’t do much at all,” Mr Brody said.

Past court proceedings have exposed the internal practices of some debt vultures, including call centre scripts that promise the world.

However, when pressed about individual debt circumstances, the so-called “consultants” are unable to provide much valuable advice because they simply aren't qualified to.

“They can’t respond to people’s individual needs — they’re just there for the hard sell to get you to sign up,” Mr Brody said.

For information about the services provided by the National Debt Helpline, visit ndh.org.au

RBA concerned on the high levels of household debt 5:23

The RBA has warned Australians on the high levels of household debt in its July minutes meeting.
Household debt to disposable incomes is running at 200 per cent, which is delaying a spike in interest rates.
Moody’s Analytics economist Katrina Ell told Sky News Business that despite growing household debt levels, they expect the RBA to increase rates at the fourth quarter of 2019.